Twin Cities home prices slip 2.7% in July

Twin Cities' area housing prices dropped a little in July compared with June, but the median price of $224,950 shows that buyers are still out in force.

The rate of rising sale prices tends to slow in mid-summer, but Herb Tousley, a University of St. Thomas professor who follows the local real estate market, doesn't see a plateau yet.

"Unless we see something in the next several months" that shows a change, the market wouldn't be expected to level off, he said.

The monthly index produced by the University of St. Thomas' Shenehon Center for Real Estate showed that while the number of closed sales in July was flat, the market is still well ahead of last year on prices and sales levels.

Compared with June, the July median sale price of a Twin Cities home dropped 2.7 percent, the first monthly decrease of the year. That steady run-up in prices recently ran into rising interest rates, which turned away some prospective buyers.

The national Case-Shiller Home Price Index, also released Tuesday, shows that the Twin Cities was one of six metro areas that showed an acceleration in sale prices in June. Twin Cities' home prices were up 2.3 percent from May to June, according to the index, and now are up 11.5 percent in the past year.

Nationally, though, the numbers from Case-Shiller showed the 12-month housing price increase was smaller than the previous month's increase for the first time in a year.

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That easing also was likely due to rising interest rates, experts said, with 30-year loans now coming with rates near 4.6 percent.

In the 13-county Twin Cities metro area, the $224,950 median price in July for a "nondistressed" home sale is 6.2 percent below the peak price of $239,900 in the summer of 2006, which was just before the most recent housing bubble started to burst. Nondistressed means the sale didn't involve a foreclosure or a short sale.

If the Twin Cities' market approaches the $239,900 median sale price again, "you'll want to see some slower, more sustainable growth," Tousley said.

The price increases that led to the 2006 bubble included a lot of homes being flipped by investors and eagerness among buyers who believed prices would just keep rising. "It really was unsustainable," Tousley said.

The recent ongoing rise in Twin Cities' area home prices has been fueled in large part by a change in the mix of homes being sold. As recently as July 2012, homes that had been foreclosed upon -- or were being sold as short sales -- made up 34 percent of all sales. Last month, that figure was down to 20.7 percent of sales. That's the lowest level since January 2008, St. Thomas' study found.

A short sale means the home is being sold for less than is owed on the seller's mortgage. Foreclosures and short sales are priced lower than traditional sales and therefore drive down the median price; they also can lower neighboring property values.

The recent trend away from distressed sales also is helping fuel a resurgence in downtown St. Paul's condominium market.

Battered during the recession, condominium prices in downtown St. Paul are up 35.8 percent in the past year, according to data from the Minneapolis and St. Paul Area Associations of Realtors. The median price in downtown St. Paul in July was $153,500, up from $113,000 12 months earlier.

"Part of it is we don't have the foreclosure inventory like we used to," said Cheryl Kempenich, an agent with Coldwell Banker Burnet who handles a lot of downtown condominium sales. "The economy is better. And we're starting to see a lot more urban cabin buyers downtown."

Those downtown "cabins" are second homes for people who may have their primary home in the suburbs, or Florida, or maybe on a lake outside the metro area, she said.

There are some young people buying condos downtown, she added, "but they're not the type that are thinking of having kids soon."